MUMBAI (Reuters) - The Indian rupee is expected to open higher on Thursday after weak U.S. services and labor data prompted a drop in the dollar index and U.S. Treasury yields, spurring a recovery in Asian currencies.

Non-deliverable forwards indicate the rupee will open at 83.50 to the U.S. dollar, compared with 83.53 in the previous session.

The dollar index dropped on Wednesday and dipped further during Asian hours. Asian currencies, which have broadly been under pressure, recovered on the day.

The respite for Asia would mean a "minor dip" on the dollar/rupee that is "highly unlikely" to extend beyond 83.35-83.40, a currency trader at a bank said.

The dollar/rupee has repeatedly been supported at the 83.35 handle over the last month.

A measure of U.S. service sector activity slumped to a four-year low in June, data released on Wednesday showed, indicating that growth in the world's largest economy was cooling.

Further, U.S. initial claims for unemployment rose 238,000 slightly above expectations and private payrolls jumped by 150,000 jobs in June, below consensus estimates, signalling that the labour market was softening.

U.S. Treasury yields declined after the data, and the odds of Federal Reserve rate cut in September inched up.

The soft U.S. labour market report, coupled with weakness in the services sector saw U.S. markets price-in about a 10% higher chance of a Fed cut by September, ANZ Bank said in a note.

Meanwhile, minutes from the Fed's previous meeting showed that policymakers approve of wait-and-see approach before cutting rates.

While the minutes echoed a more cautious stance to rate cuts, they have been overshadowed by recent (mostly weaker) data, so "they didn't have any real impact", ANZ said.

KEY INDICATORS:** One-month non-deliverable rupee forward at 83.58; onshore one-month forward premium at 7.5 paise** Dollar index at 105.29** Brent crude futures down 0.5% at $86.9 per barrel** Ten-year U.S. note yield at 4.35%

** As per NSDL data, foreign investors sold a net $300.2mln worth of Indian shares on July 2

** NSDL data shows foreign investors bought a net $36.2mln worth of Indian bonds on July 2

(Reporting by Nimesh Vora; Editing by Sonia Cheema)

By Nimesh Vora